Primis Financial Corp. Q3 FY2024 earnings call

• Corrected accounting error on consumer loan portfolio with impacts from multiunit accounting method. - Core bank's cost of deposits improved, and it's building new commercial relationships at 3x the pace of a year ago. - Panacea has new commercial deposits and is developing ancillary services. - Mortgage team had strong growth in locked loans. - Life Premium Finance sale to improve TCE and NIM. - Credit quality stable with 25bps nonperforming assets, and one commercial real estate property downgraded conservatively.

The consumer loan portfolio represents 5% to 6% of total loans. The core bank's cost of deposits for the quarter was 2.21% compared to 1.97% a year ago. The core bank's cost of deposits is 40 to 50 basis points lower than community bank peers in the Mid-Atlantic. Panacea has new commercial deposits and is developing ancillary financial services. The mortgage team locked $277 million of loans in Q3, up 67% y-o-y. The Life Premium Finance move is expected to improve tangible common equity ratio by ~75 basis points and net interest margin immediately by 6-7 basis points, with further margin lift expected in subsequent quarters. Mortgage warehouse yields are 160 basis points higher than current Life Premium yields.

• Core expenses expected to be relatively flat. - Mortgage warehouse modeling to be broken out in 2025. - Target to reach 1% ROA in second half of 2025, driven by mortgage momentum, Life Premium sale benefits, and core bank contributions.

• Uncertainty from SEC consultation on consumer loan portfolio accounting. - Volatility in earnings due to timing of interest recognition on promotional loans.

Q: Could you give guidance on core expense outlook given the Premium Finance sale and new hires around mortgage warehouse?

A: Should be relatively flat.

Q: Do you plan to break out mortgage warehouse loans for loan loss reserves modeling?

A: Will break out as much information as possible in 2025, with it likely to be in 4Q of '24 or 1Q of '25.

Q: Your target for 1% ROA, can you walk through the glide path?

A: Reasonable shot to get there in second half of 2025, with promotional loans bleeding off in next two to three quarters, replacing portfolio with higher rates and better profitability, combined with expense controls and core bank contributions.

Q: About cost of funds, is the rate seen this quarter a peak and thoughts on betas?

A: Cost of funds ticked down in September, peaked in August. Betas depend on Fed cuts, competitive environment; core bank beta around 20% after last move, with plans to adjust based on Fed cuts and competition.